Milken, Bad Housing Numbers and More Bankruptcies
JAMES M. KENNEDY
Nov. 24, 1990
NEW YORK (AP) _ A running news story became an entry for the history books this past week when a federal judge sentenced junk-bond financier Michael Milken to 10 years in prison.
Even though the former master of the universe for Drexel Burnham Lambert Inc. probably will serve only a fraction of the term, the severity of the judge's pronouncement punctuated the Milken tale with an exclamation point.
There should be no doubt in anyone's mind - nor in the minds of those who study his case years from now - that this was a stunning comeuppance.
A man who had been portrayed by some as the most influential financial figure of modern times got more jail time than some hardened criminals.
The unmistakable message from U.S. District Judge Kimba Wood, just two years older than the 44-year-old Milken, was that white-collar crime should not pay.
Milken made more than $1 billion peddling high-yield junk bonds for Drexel, and remains among the country's richest people even after paying $600 million in fines and restitution as part of his plea agreement to six felony charges.
Despite his wealth, the Manhattan courtroom scene reduced the larger-than- life Milken to more human proportions. It proved a strange ending to an era of excess in the financial world.
Once Milken found himself in the company of adoring elders in the highest ranks of corporate America as he charted a course for restructuring companies with huge amounts of debt. On Wednesday, he was humbled in front of a contemporary judge, who said he had misused his ''leadership position'' and should be ''removed from society.''
As the case was debated before and after the sentencing, Milken was alternately praised by supporters as a wizard and blamed by detractors for everything from Drexel's own collapse to the recent downturn in the economy.
But Judge Wood's sentence struck with a force that diluted the celebrity and left just a man who would leave a wife and a family and go to prison next March.
Milken was not vindicated, as he had hoped he would be, and the decade of greed that he symbolized seemed to be banished to the dark past. ECONOMY: Housing Numbers Extend Slide
It was a light, but characteristically depressing, week for economic reports. The government said home building plunged 6 percent in October, extending the slide in the construction business to nine months, the longest on record.
Housing starts have sunk to the lowest level since the last recession in 1982. Analysts said the industry was battered from two sides by sagging consumer confidence and tight credit. Many said the malaise would linger well into 1991.
With the evidence of recession rising, so did the rhetoric from Washington. Treasury Secretary Nicholas F. Brady urged regulators not to overreact to the softening economy by discouraging banks from making reasonable loans.
''Use some judgment. Apply some balance,'' he implored bank examiners.
Meanwhile, President Bush's chief economist, Michael Boskin, exercised some damage control of his own after his boss used the word ''downturn'' to describe the economy's shape. Boskin allowed that current conditions were sluggish, but he said it would be premature to declare a recession.
There was no denying a recession on Wall Street, however. The Securities Industry Association said profits in the business totaled an anemic $200 million in the first six months of 1990 and have deteriorated since.
The trade group said the sum was ''not equivalent to a single decent bond issue a few years ago.'' COMPANIES: Laventhol Files for Bankruptcy, Greyhound Plan Proposed
The nation's seventh-largest accounting firm, Laventhol & Horwath, sought refuge in bankrupcty court under fire from lawsuits seeking damages from dissatisfied clients.
Robert Levine, the firm's executive partner and chief executive officer, said the Chapter 11 filing was prompted by ''a series of tragic circumstances.''
Among them was a $30 million payment to creditor banks last year - of which only $18.5 million was covered by insurance - over an audit for the Grabill Corp. of Chicago. Laventhol audits of Jim Bakker's PTL ministry also ended up in court in North Carolina.
The firm's problems were among the most severe in an industry increasingly plagued by malpractice litigation. Laventhol said some of its partners would continue servicing clients independently to help pay off debts.
In another Chapter 11 case, Greyhound Lines Inc. filed a plan of reorganization with a Texas court that would erase the equity of the current owners and issue new stock to the firm's unsecured creditors. The plan also promised full repayment of secured bank debt, real estate mortgages and bus leases.
But the bus line must still satisfy its drivers, who have been on strike since March and have protested their treatment to the National Labor Relations Board. The drivers could propose a reorganization plan of their own.
CBS Inc. said it expected a loss in the fourth quarter and lower earnings in 1991. The broadcasting company blamed the deteriorating picture on the poor advertising climate and disappointing returns from its expensive venture into sports programming.
The disclosure of the projected loss came just before the network went before affiliates to propose a reduction in the amount of money it will pay local stations to carry national programming. MANVILLE: Beginning of the End for Claimants
A plan was proposed for restructuring the finances of the Manville trust to try to meet claims by thousands of Americans made sick by working with asbestos.
The plan was aimed at resolving the fund's cash crisis and breaking a logjam of asbestos claims in the courts. It proposes to pump up the fund with more money and pay the neediest cases first.
Asbestos, once considered a miracle fiber, caused thousands of deaths from lung cancer and other ailments. The resulting lawsuits sent several companies into bankruptcy court and clogged court dockets nationwide.
The $2.5 billion Manville trust was set up after Manville Corp., once the leading producer of asbestos, reorganized under bankruptcy court supervision in 1988. Already, the trust has paid more than $1.1 billion to settle about 23,000 claims, but faces another 130,000 cases.
The restructuring plan, which must be reviewed by a judge and will likely be appealed, requires Manville Corp. to provide an additional $520 million to the fund over seven years. Claimants would be paid based on the severity of their illnesses.
Lawyers' fees - one of the most controversial elements of the asbestos issue - would be capped at 25 percent of their clients' settlements. NO MIRAGE: One Gaming House Doing OK
Even as Donald Trump struggled to keep control of his highly leveraged Taj Mahal casino in Atlantic City, Steve Wynn was showing off a beautiful hand at his Mirage Hotel in Las Vegas.
The Mirage turned a year old, and Wynn took the opportunity to ballyhoo his first-year results, which ran about 50 percent above projections. He said hotel revenues the first year would approach $650 million.
Between 25,000 and 45,000 people visit the Mirage daily, surpassing Hoover Dam as the most popular attraction in Southern Nevada.
End Adv Weekend Editions Nov. 24-25